Fraud Hit 70 Percent of Health Care, Biopharmas: Report

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By John T. Aquino

Nov. 24 — Seventy percent of health-care, pharmaceutical and biotechnology companies worldwide were affected by fraud in the past 12 months, which was still the lowest percentage among industries surveyed for a report released Nov. 23.

The health industry group's percentage of intellectual property thefts, facilitated by increased outsourcing and off-shoring, was, however, the highest across all industries surveyed, according to the “Kroll Global Fraud Report: Vulnerabilities on the Rise.”

The findings from health-care and biopharma industry executives revealed that the most common type of fraud was due to management conflict of interest, which was experienced by 17 percent of the companies, followed by theft of physical assets or stock (14 percent), regulatory or compliance breach (14 percent) and IP theft (13 percent).

The largest concentration of respondents to the survey, which the Economist Intelligence Unit conducted for Kroll, a New York-based risk management company, were those from Europe (29 percent), North America (25 percent) and the Asia-Pacific region (24 percent), with 12 percent from Middle East/Africa and 10 percent from Latin America.

High Turnover, Outsourcing Big Drivers

Survey results were gathered from January to March from 768 senior executives covering a wide range of industries. Fifty percent of survey participants were “C-suite level”—referring to the highest executive level of a company—and more than half represented companies with annual revenues of more than $500 million.

The biggest drivers of this increased exposure to fraud by health-care, pharmaceuticals and biotechnology companies were high staff turnover (28 percent) and an increase in outsourcing and off-shoring (19 percent), the report said.

“[S]urprisingly for this industry is the low focus on intellectual property measures,” the report said. “The proportion of respondents who say that their company will be enhancing IP protection in the coming year is 18 percent, but 19 percent report that increased outsourcing and off-shoring—common routes for IP loss—have driven greater risk exposure.”

Other types of fraud reported by health-care, pharmaceutical and biotech companies were vendor, supplier or procurement fraud (11 percent); information theft (10 percent); internal financial fraud (8 percent); corruption and bribery (7 percent); misappropriation of company funds (6 percent); money laundering (1 percent); and price fixing (1 percent).

‘Old-Fashioned' Fraud Still Pervasive

“To keep fraud levels at those reported this year,” the report concluded, “the health care, pharmaceuticals and biotechnology industry will have to keep adapting its anti-fraud measures to its evolving business model.”

Kroll Chairman Daniel Karson said in a press statement, “One of the most telling results from this year's report is how vulnerable to fraud companies are feeling. In one form or another, the specter of fraud arises in virtually every business relationship. What our report drives home is that fraud is often an ‘inside job' and that companies must address both internal and external relationships if they are to most effectively protect their money, property and private data.”

Old-fashioned theft, bribery and kickbacks are still pervasive, Kroll said. “Human nature being what it is, fraud will always be with us, whether it occurs in a company's corner office or a world away in its supply chain. However, there are numerous strategies, resources and best practices available to companies that can go a long way toward helping them protect themselves and their investments.”

To contact the reporter on this story: John T. Aquino in Washington at

To contact the editor responsible for this story: Lee Barnes at

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